After Headwaters Deal, What's Next for
Hurwitz?

I t was vintage Charles Hurwitz. Despite pleas from Air Force One, the erstwhile corporate raider rejected a long-awaited pact to sell a huge tract of virgin redwoods owned by his
Maxxam Inc.
to the State of California and the U.S. government, calling it not viable economically. As a result, Maxxam stock plummeted 18%. Then, just as federal funding for the purchase was to expire, Hurwitz accepted. On Tuesday, Maxxam soared 20%, to 57 11/16.

Under the plan, Maxxam will sell the government the 3,500-acre Headwaters forest, home to a host of endangered species, and some adjoining lands for roughly $480 million, the bulk of it payable this year. The deal can be compared to the one that turned Yosemite into a national park. Maxxam's Pacific Lumber operation will obey a 50-year Habitat Conservation Plan to guide how it logs the remaining 211,000 timber acres it owns. The deal should ease protests by environmentalists. Pacific Lumber will hold the sale proceeds in escrow, as it negotiates with bondholders about the company's debt.

Though the agreement yanked Maxxam stock higher, shareholders have argued for some time that Maxxam is worth far, far more ("Cutting a Deal," December 7, 1998). George Ireland of Knott Partners figures Maxxam is worth a minimum of $130 a share: $42 a share in cash, a "conservative" $28 for the remaining Pacific Lumber assets, $35 representing Maxxam's stake in Kaiser Aluminum and $25 for real estate.

Maxxam hasn't yet said what it intends to do with the cash. But Ireland and others are salivating over the prospect of a major buyback. Says Alan Kahn, a New York-based small-cap investor, Maxxam shareholder and frequent litigant: "A major risk now for stockholders is that Hurwitz might try to use his new-found riches to take the company private with a lowball bid. If this were to occur, I guess we'll have a date in court."

Food Fight

The long-running banana dispute with Europe erupted into war, and the U.S. slapped tariffs on 15 types of European products, many of them luxury items. Amid howls from importers, expect to see higher prices on pecorino cheese from Italy, cashmere sweaters from Scotland and luxury linen sheets from France. The dispute stems from Europe's banana trade policy, which discriminates against bananas from South America that are shipped by U.S. firms like
Dole Foods
, in favor of those from former European colonies in Africa and the Caribbean. The next clash could be over steaks: The World Trade Organization has ruled against Europe's decade-long ban on hormone-treated beef, and Europe has until May 13 to follow the ruling.

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Power Ranger

The U.S. economy displayed uncommon vigor last week, while inflation stayed tame. Unemployment inched higher, though mild weather boosted construction industry hiring. Retailers posted better-than-expected February sales, factory goods orders snapped back, auto sales powered higher. Economists are starting to boost growth forecasts. The Conference Board said its index of leading economic indicators posted its third consecutive sharp increase. Meanwhile, the National Association of Purchasing Management said manufacturing strengthened in February. But if a strong economy and merger mania conspired to lift the Dow near 10,000, bonds fared worse. And rates on 30-year fixed-rate mortgages leaped to their highest level since May.

Slick Oil

Oil prices shot higher after a surprising decline in crude oil inventories, and a temporary halt to Iraqi production. That lifted battered oil and oil-service shares like
Exxon
and
Schlumberger
. Some pundits began fretting about inflation, and others dismissed the rally. After all, OPEC meets in just two weeks, and a production cut is widely expected, but no one knows what the magnitude would be.

Euro-phoria Fades

The new euro, expected to rival the dollar as a reserve currency, fell to a new low. Blame the U.S. economy's strength and rising interest rates, which bolster the dollar. Some officials saluted the decline, noting that it boosted prospects for European exports. With many European economies weak, the European central bank may consider easing credit this Thursday.

Hewlett-Packard will spin off its test- and measurement-equipment operations, with annual sales of around $7.6 billion. It may also hire an outsider to succeed Chairman and Chief Executive Lewis Platt.

DaimlerChrysler lost two senior executives to
Ford Motor
, following aggressive moves by Ford's CEO to hire talented outsiders.

Mattel's chief operating officer and second-in-command is leaving, as is the head of the company's Fisher-Price unit, as part of a management shakeup.

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